Ocado - comment

Ocado’s Q1 trading statement this morning displayed a continuation of the slow improvements seen in the recent FY and Christmas trading statement. Customer numbers are rising slowly albeit with flat basket sizes. Our thesis is that the company has sufficient cash to roll out its international business and that Ocado lives and dies on the long-term success of the international business. We have targeted 13% as our entry yield and the 3.875%/26 SUNS are now trading near those levels. We don’t see momentum building in the bonds until the H1 numbers come out (18/7) and we see that as an entry point. Management is guiding for negative EBITDA in H1 with an improvement to positive EBITDA in H2, our model has -£43m in H1 and £7m in H2. Delivery of that guidance in H1 would boost management’s credibility.